Supporting Calls for Higher Rates Amid 8.5% Inflation
Central bank chiefs from Austria and Belgium supported previous statements from their Slovakian and Lithuanian counterparts, advocating for higher rates to control the euro zone's 8.5% inflation rate. This comes after the ECB increased interest rates by 50 basis points on Thursday.
Future Rate Hikes May Be Data-Dependent
Austrian central bank chief, Robert Holzmann, expressed that inflation is more challenging than anticipated and expects further interest rate hikes, although the extent of these increases will depend on data. The ECB has raised rates by 350 basis points since July, with its benchmark refinancing rate at 3.5% as of Thursday.
Uncertainty in Benchmark Rate Projections
Belgian central bank chief, Pierre Wunsch, stated the ECB has a "long way to go" if its baseline inflation forecast materializes. Still, the exact measure of future rate hikes remains unclear. Holzmann suggested that the benchmark rate might exceed 4%.
Inflation to Remain Above 2% Target
The ECB projected on Thursday that inflation would stay above its 2% target through 2025, using forecasts formulated before a significant selloff in bank shares this week. The outlook became more uncertain after the collapse of two US banks and ongoing issues at Credit Suisse Group.
No Contagion Risk Amid Banking Troubles
Despite global banking stocks being battered following the collapse of Silicon Valley Bank and Credit Suisse's need for $54 billion in central bank funding, Holzmann and Wunsch see no risk of another global financial crisis. They believe these events are unique and unrelated to systemic problems.
Low Bankruptcy Risk for Credit Suisse
Wunsch stated a "very low" likelihood of Credit Suisse going bankrupt. The bank's situation could be better, and Swiss authorities would intervene if necessary due to its systemic importance.
